Noonan and Draghi to discuss ECB policy shift on bondholders

THE EUROPEAN Central Bank’s “extraordinary” shift of policy on burning senior bondholders will form part of the discussions between Minister for Finance Michael Noonan and bank president Mario Draghi in Frankfurt today.

Mr Draghi had told a meeting of EU finance ministers last week that the ECB would not insist that no losses be forced on senior bondholders of Spain’s worst-affected banks, the Wall Street Journal reported yesterday.

This represented a substantial policy change for the ECB which had consistently refused the request of successive governments in Ireland to compel senior creditors to bear some of the losses.

Mr Draghi’s proposal for the Spanish banks was reportedly rejected by finance ministers amid concerns over market reaction.

There has been no official confirmation of the policy change from the ECB, from the head of the eurogroup, Luxembourg prime minister Jean Claude Juncker, or from other member states, including Ireland.

However, EU officials and Government sources have confirmed that such a change was mooted.

Mr Noonan’s spokesman said Mr Juncker was the only person authorised to speak on behalf of the eurogroup.

Sources also downplayed the practical significance of it for Ireland, saying that all but €160 million of senior debt in the former Anglo Irish Bank and Irish Nationwide had already been paid.

The development will form part of today’s discussions in Frankfurt aimed at reducing the €64 billion cost to the Sovereign of the banking collapse. Sources said it might give extra “leverage” to Mr Noonan’s case for a substantial reduction to be applied retrospectively.

“This is [a] meeting about the ongoing discussion on long-term sustainability of [the] Irish financial system, which follows on from the January meeting and the outcome of the recent EU summit,” the spokesman said.

A change in the ECB position last year could have allowed the Government to negotiate a writedown of debt with senior unsecured unguaranteed bondholders at Anglo Irish Bank and Irish Nationwide holding almost €4 billion of debt and €16 billion across all Irish lenders at about the time of last year’s bank stress tests.

Market reaction to the story was muted, as investors shrugged off the rumours.